Topic: GST Input Tax Credit(ITC) &

Utilization - Proposed Guidelines and Recommended Practice

Hiral Raja
Chief Manager Taxation
Asian Paints Limited

Satish V M
Product Expert, SAP Labs India

Agenda

Present Input Tax Credit Scheme and its Drawback

Input Tax Credit under GST
Treatment of Additional Tax Proposed on Inter State
Transactions
Open Issues
Maximise Input Tax Credit Availment (under GST)

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Present Input Tax Credit Scheme and its Drawback

CENVAT CREDIT
Allowed

Disallowed

Other Challenges

on input and input services

on inputs not used directly in
against manufacture of taxable
manufacturing viz. Sales
goods or provision of taxable
promotion items,
services
advertisement materials

Distribution of input services

thru ISD model - without
flexibility to distribute the
credits to any units

on inputs at factory level and in with respect to trading of

case of service providers
goods
depending on their registration
status

Does not have mechanism

for refund of accumulated
credits (except in case of
exporters)

on input services allowed

subject to a negative list
gives rise to interpretational
issues
on capital goods allowed 50%
in first year and remaining in
second year

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Present Input Tax Credit Scheme and its Drawback

VALUE ADDED TAX (VAT), CENTRAL SALES TAX (CST) & OTHERS
Allowed
Input

tax credit allowed

subject to a retention rate
for stock transfers outside
the state (burnout)

Disallowed
on

inputs of exempt sectors

viz. service sector,
agriculture, etc
with respect to trading of
Varying rate of retention in goods
various states
on CST paid on purchases
on Luxury Tax
on Entry Tax

2015 SAP SE or an SAP affiliate company. All rights reserved.

Other Challenges
Certain

States allow ITC on

all business purchases and
certain states allow ITC
only on purchases in
relation to manufacturing of
goods or reselling of goods
Varying list of negative list
across the states

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Present Input Tax Credit Scheme and its Drawback

Cascading effect of taxes/increased cost of doing business:

Inability to avail credit of all taxes paid on sourcing/business expenditures
Accumulation of credits leading to blockage of funds

Comprehensive Credit Mechanism under GST

Smooth pass-through of all credits to pass incidence of

tax to the consumer without any cascading effect

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Input tax credit under GST

CGST:

SGST:

Central Excise Duty

VAT / Sales tax

Additional Excise Duties

Excise Duty levied under the Medicinal

and Toiletries Preparation Act

Entertainment tax (unless it is levied by

the local bodies).

Purchase tax

Service Tax

Luxury tax

Additional Customs Duty - (CVD)

Taxes on lottery, betting and gambling

Special Additional Duty of Customs - 4%

(SAD)

Octroi and Entry Tax

State Cesses and Surcharges in so far as

they relate to supply of goods and
services

Surcharges and Cesses

Centre would levy IGST which would be CGST plus SGST on all inter-State
transactions of supply of taxable goods and services

2015 SAP SE or an SAP affiliate company. All rights reserved.

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Input tax credit under GST

Transaction

Intra State

Inter State

Purchase of
Goods

CGST+SGST

IGST

Receipt of
Services

CGST+SGST

IGST

Imports

IGST

Separate accounts for each state need to be maintained for CGST,

SGST and IGST credits received

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Input tax credit under GST

Credit of

Can be utilized against

Liability of

CGST

CGST and IGST

SGST

SGST and IGST

IGST

IGST,CGST and SGST

Cross utilization between SGST of one state and SGST of another state not
allowed
Credit of taxes paid on petroleum products not available (since it is not a part
of GST)
Refund/adjustment in case of exports, purchase of capital goods, inverted duty
structure on output tax to be completed in timely manner
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Input tax credit under GST

Illustrative list of Input tax credits currently not available (that might be
available under GST):
Credit on inter state purchases/supply of goods
Burnouts on stock transfers and negative list of goods under each state
Service tax credit on freight from the place of removal to the customer and
other service tax credits currently not available
Excise credits for all business purchase expenses viz. Sales promotion
items, gifts, etc
Luxury tax paid in Hotels
Service tax credits on trading of goods
CVD and SAD on imported goods procured for trading of goods/sales
promotion
Tax credits on purchase of hardware and software

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Treatment of additional tax proposed on inter-state

transactions

States allowed to collect additional tax (not exceeding 1%) on supply of goods in
course of inter state trade

No clarity on availability of input tax credit as well as mechanism for this

additional tax

Honble Finance Minister in Lok Sabha has assured that 1% additional tax
levied in the course of interstate supply of goods shall have no cascading effect
Additional tax will have to be captured separately at each state level

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Open issues

Will ISD Mechanism Continue?

What is the future of LTU Facility ?

Whether any burnouts/negative list would be there under GST ?

Would Input Tax Credit be available on :

All business purchases Free Samples, Gifts, Sales promotion,etc
Damages/Shortages, etc
In cases wherein sale price is lower than the purchase price

What are the transitional provisions from pre-GST to GST regime?

2015 SAP SE or an SAP affiliate company. All rights reserved.

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Maximise Input Tax Credit Availment (under GST)

Identify the tax cost (with respect to taxes that are supposed to merged into GST)
in the profit and loss account and start capturing the same so as to enable the
business to understand the impact of GST

Identify the existing contracts/POs wherein contracts will have to be renegotiated

on account of availability of the input tax credit to the vendor as well as the
Company and include clauses for facilitation of renegotiating on implementation of
GST

Review the current operations/distribution models and evaluate the need for any
changes in the operation/distribution models on account of :
Availability of full credit under GST system; and
Impact of additional tax payable on the supply of goods in course of inter state trade

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Input Tax Credit Utilization - Solution Approach

Configuration Approach

Each GSTN registration to be created as a Business

Place

Each Tax Component (CGST, SGST etc.) to be

configured as Transaction Key

GL accounts can configured for each GST Registration &

Tax Component
i.e. Business Place & Transaction
Key

Goals

Tax Credit can be accumulated

at each registration by tax
component

Utilization Transaction

New Transaction to perform utilization

Comparison of tax credits available vs. payables by GL

Account aggregation

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To enable control &

transparency in utilization

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Thank you

Contact information:
Hiral Raja
Asian Paints Limited
+91 22 - 39818336

2015 SAP SE or an SAP affiliate company. All rights reserved.